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    Allocation of shared costs and depreciation: apportionment on reasonable basis and fair proportion affects tonnage tax computations.
    Clause 228(14) requires common costs attributable to the tonnage tax business to be allocated on a reasonable basis, with taxpayers maintaining records to support apportionment. Clause 228(15) requires depreciation for assets other than qualifying ships to be apportioned on a fair proportion determined by the Assessing Officer with reference to actual use. Both provisions mirror Section 115VJ, vesting discretion in the AO and preserving the objective of preventing tax arbitrage while increasing documentation and compliance burdens.
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    Tonnage tax regime: clarifies qualifying shipping income, market value inter company valuation, and related party anti avoidance adjustments.
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    Tonnage tax definitions: expanded, self-contained eligibility rules broaden coverage and tighten residency and exclusion tests.
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    Accreted income interest compels prompt tax payment and creates joint personal liability for trustees and principal officers.
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    Exit tax on accreted income expands triggers and fixes final levy after prescribed valuation and procedural safeguards.
    A tax on accreted income charges NPOs additional income tax at the maximum marginal rate when specified events occur; accreted income equals aggregate fair market value of assets less total liabilities on a specified date, computed under prescribed valuation methods, with exclusions as prescribed. The Assessing Officer must afford a hearing before ordering tax, the bill sets a detailed table of triggering events and payment timelines, and the tax payment is final with no further credit or deduction allowed.
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    Pass-through taxation for securitisation trust income preserves investor-level taxation while mandating reporting and deemed-accrual rules.
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    Minimum alternate tax definitions shape MAT/AMT computation and Ind AS transition treatment, narrowing tax arbitrage opportunities.
    Clause 206(19) supplies granular definitions aligning MAT/AMT computation with Ind AS convergence, insolvency law and cross statutory terms. Key terms include adjudicating authority (IBC), convergence date, transition amount with specified exclusions, net worth, company classifications, securities, tribunal, unit (IFSC) and year of convergence. These definitions phase in Ind AS transition impacts, harmonize tax and insolvency treatment, clarify eligibility for concessional AMT rates, and reduce tax arbitrage and interpretive disputes compared with the narrower definitions in Section 115JF.
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      Section 153C (Finance Act, 2015) and Third-Party Search Assessments: Interplay of Belongs To and Pertains/Relates To

      28 January, 2026

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      This article analyses the judicial decision reproduced below, focusing on the legal reasoning adopted by the Court and its practical implications for practitioners. The judgment is analysed in the context of its factual background, issues framed, and conclusions reached by the Court.

      2023 (4) TMI 296 - Supreme Court

      At a Glance

      A dispute arose on whether the post-amendment text of Section 153C of the Income-tax Act, 1961 (as substituted by the Finance Act, 2015) can be invoked where the underlying search under Section 132 was initiated before the amendments effective date, but the satisfaction/transfer of material and issuance of notice under Section 153C occurred after that effective date.

      The court held that the amended Section 153C applies even to searches initiated before the amendments effective date. The court relied heavily on (i) the deeming fiction in the first proviso to Section 153C, and (ii) the legislative technique and legal effect of substitution, coupled with purposive construction of a machinery provision.

      For practice, the decision clarifies that the relevant legal regime for Section 153C action is not frozen on the date of search alone; where the statutory deeming fiction anchors timelines to the date of receiving seized material by the Assessing Officer having jurisdiction over the other person, the amended framework may govern subsequent Section 153C proceedings.

      Factual Background

      A search under Section 132 was conducted at the premises of a searched person/group. During the search, electronic material was seized, including data that contained references to a person other than the searched person (the other person/assessee).

      Proceedings were initiated against the other person under Section 153C. The other person objected, contending that, under the pre-amendment Section 153C, the statutory trigger required seized books/documents/assets to belong to the other person, and mere references or information relating to the other person would not satisfy the jurisdictional condition. Objections were rejected by the Assessing Officer.

      Multiple writ petitions were filed challenging notices under Section 153C (and in some cases, consequent assessment orders). The High Court quashed the Section 153C notices and consequential proceedings on the premise that the Finance Act, 2015 amendment to Section 153C could not be applied to searches initiated before the amendments effective date, treating the amendment as affecting substantive rights by expanding the class of persons covered.

      The revenue appealed, asserting that Section 153C is a machinery provision; that the amendment was by substitution and intended to remedy a restrictive interpretation of belongs to; and that, in any event, the deeming fiction in the proviso to Section 153C makes the date of receiving the seized material determinative for the other person.

      Issues Before the Court

      (1) Whether the amendment brought to Section 153C of the Income-tax Act, 1961 by the Finance Act, 2015 substituting the expression belongs or belong to with pertains or pertain to, or any information contained therein, relates to applies to Section 153C proceedings arising out of searches under Section 132 initiated prior to the amendments effective date.

      (2) Whether the High Court was correct in treating the Finance Act, 2015 amendment to Section 153C as purely prospective on the footing that it enlarges the scope of persons against whom Section 153C can be invoked, thereby affecting substantive rights.

      (3) What is the operative relevance of the first proviso to Section 153C (which deems the date of initiation of search reference, for the other person, as the date of receiving the seized material by the Assessing Officer having jurisdiction over such other person) while determining the applicable legal regime.

      Courts Reasoning

      1) Statutory architecture of Section 153C and its link to Section 153A

      Section 153C is structured as a non obstante machinery enabling assessment/reassessment of a person other than the searched person, by importing the assessment mechanism of Section 153A once specified jurisdictional conditions are met. Both the pre-amendment and post-amendment versions operate on the same core idea: where seized material connects to a non-searched person, the Assessing Officer having jurisdiction over that other person proceeds under the Section 153A framework.

      2) The critical change introduced by the Finance Act, 2015: belongs to vs pertains/relates to

      Pre-amendment Section 153C(1) required the Assessing Officer to be satisfied that books of account/documents/assets seized belongs or belong to a person other than the person referred to in Section 153A. Post-amendment Section 153C(1) retains belongs to for assets such as money, bullion, jewellery or other valuable article or thing, but, for books of account and documents, expands the trigger to where such material pertains or pertain to, or any information contained therein, relates to a person other than the searched person.

      The court treated this expansion as a legislative response to a restrictive judicial reading of belongs to, which had hindered action against third parties even where incriminating documents or information were found in the searched persons possession but did not strictly belong to the third party.

      3) Deeming fiction in the first proviso to Section 153C: date of receiving as the operative reference point

      The court placed substantial weight on the first proviso to Section 153C. Under that proviso, for the other person, the statutory reference to the date of initiation of the search under Section 132 or making of requisition under Section 132A (as appearing in the second proviso to Section 153A(1)) is to be construed as a reference to the date of receiving the seized books/documents/assets by the Assessing Officer having jurisdiction over such other person.

      This deeming rule shifts the anchor point, for the other person, away from the search initiation date and towards the date when jurisdictional material is received by the Assessing Officer of the other person. On that approach, if the receipt/transfer and the subsequent notice under Section 153C occur after the amendments effective date, the provision existing as on that date governs the proceedings.

      4) Amendment by substitution and its interpretive consequence

      The Finance Act, 2015 amendment was characterised as a substitution of text in Section 153C, not a mere addition. Relying on settled interpretive principles on substitution, the court reasoned that substitution ordinarily results in the earlier text being replaced as if the substituted text were the operative text, subject to statutory context and purpose.

      In the courts analysis, reading the amended Section 153C as inapplicable merely because the search preceded the amendment would undermine the legislative cure, given that the very mischief addressed was the inability to proceed against an other person despite incriminating material being found during search.

      5) Section 153C as a machinery provision: purposive construction to avoid frustration of the mechanism

      While acknowledging that taxing statutes are generally strictly construed, the court reiterated that machinery provisions are construed so as to make them workable and to effectuate the charge and statutory purpose. Section 153C, being the machinery for assessing any other person on the basis of search material, must be interpreted to advance its manifest purpose.

      The court reasoned that if the amended phraseology (pertains to/relates to) were denied operation for pre-amendment searches, then for a significant class of situations where incriminating information about a third party exists in seized material that does not strictly belong to that third party the Section 153C mechanism would remain ineffective, contrary to the legislative objective behind the substitution.

      6) Rejection of the substantive right/vested right objection in the given setting

      The court did not accept the contention that the amendment could not apply because it expanded coverage and affected substantive rights. It viewed Section 153C as a procedural/machinery route to assess the other person based on seized material; the issuance of notice and ensuing process does not, by itself, conclude liability. Consequently, treating the amendment as incapable of operating in such pending/future proceedings, solely due to the search being earlier, was not upheld.

      7) Procedural consequence: liberty to challenge assessments on other grounds

      Because the High Court had decided writ petitions largely on the amendment-applicability issue, other grounds to challenge notices/assessments were left undecided. The court therefore preserved the assessees liberty to pursue statutory appeals before the Commissioner of Income-tax (Appeals) on other grounds, to be considered on merits in accordance with law, subject to the stated time window (not reproduced here).

      Decision & Ratio

      The court set aside the High Courts judgment and held that the Finance Act, 2015 amendment to Section 153C applies to Section 153C proceedings even where the search under Section 132 was initiated before the amendments effective date.

      Ratio (in substance): For proceedings against an other person under Section 153C, the deeming fiction in the first proviso to Section 153C treats the relevant reference date as the date on which the Assessing Officer having jurisdiction over the other person receives the seized books/documents/assets. Where the satisfaction/receipt of material and issuance of Section 153C notice occur after the amendments effective date, the amended Section 153C widening the trigger from belongs to to pertains to/relates to for books/documents governs, and cannot be denied application solely because the search occurred earlier.

      Practical Implications

      1) Applicable law in Section 153C matters may turn on receipt/handing over rather than search initiation

      Practitioners should closely track the handover/receipt of seized material to the Assessing Officer of the other person, because the first proviso to Section 153C statutorily re-anchors the timeline for the other person to the date of receiving the material. This affects the assessment year linkage under Section 153A and, as affirmed, can also influence which version of Section 153C governs the jurisdictional trigger for documents/information.

      2) Wider evidentiary trigger post-amendment for documents and digital material

      After substitution, Section 153C(1)(b) expressly covers documents that pertain to the other person, or where any information contained therein relates to the other person. This is especially significant for electronic records and extracted datasets, where ownership/belonging may be contestable but linkage/relatability may be demonstrable.

      3) Satisfaction and bearing on determination of total income remain central

      The amended Section 153C(1) further requires that the Assessing Officer be satisfied that the seized books/documents/assets have a bearing on the determination of the other persons total income for the specified six assessment years (and the relevant years referred to in Section 153A(1)). The widened entry point does not eliminate the need for a recorded satisfaction that connects material to income determination.

      4) Writ strategy: jurisdictional challenges may not succeed solely on the pre-amendment search date

      Where the only challenge is that the search predates the amendment, the decision indicates such a challenge is unlikely to succeed if the statutory conditions (including satisfaction and receipt of material by the other persons Assessing Officer) are met post-amendment. Challenges, if any, are likely to shift toward the sufficiency of satisfaction, the nexus/bearing requirement, procedural compliance, and other statutory grounds.

      5) Appellate pathway preserved for other objections

      Even where writ petitions were disposed on the amendment point, assessees are not foreclosed from raising other grounds in statutory appeals (for example, grounds relating to the formation/recording of satisfaction, jurisdictional handover, and the nexus of seized material to income determination), subject to maintainability and limitation under the Act.

      Key Takeaways

      • Section 153C (post Finance Act, 2015) applies to proceedings against a non-searched person even if the underlying Section 132 search began before the amendments effective date.
      • The first proviso to Section 153C is pivotal: for the other person, statutory references to the search date are deemed to refer to the date of receiving seized material by the other persons Assessing Officer.
      • The substitution from belongs to to pertains to/relates to (for books of account/documents) is treated as a purposeful cure to a restrictive interpretation that hindered third-party assessments.
      • Section 153C is approached as a machinery provision; courts will prefer a construction that makes the mechanism workable and avoids frustrating legislative purpose.
      • While the amendment widens coverage, proceedings must still satisfy statutory preconditions, including satisfaction and the bearing on determination of total income requirement.

       


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      2023 (4) TMI 296 - Supreme Court

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      ActsIncome Tax